Tuesday, September 27, 2005

The papers and presentations from last week's NY Fed conference on "Antitrust Activity in Card-Based Payment Systems: Causes and Consequences" are now available online.

My personal favorite is a paper by Guerin-Calvert and Ordover, which contains goodies such as:This accelerating focus on cost-based regulation of interchange fees is also quite perplexing in view of the common recognition among economists and policy makers that heavy-handed price regulation is rarely desirable and risks unintended consequences (such as suppression of incentives to invest and innovate, and shifting of cost burdens to consumers) that can distort markets.

This focus on direct ex ante price regulation as a policy instrument to address perceived inefficiencies in the marketplace is at odds with the broadly accepted principles that the standard antitrust enforcement “toolbox,” which has historically been used to address concerns about non-competitive pricing, barriers to entry, or other impediments to competitive functioning of the marketplace, provides a better approach than price regulation to achieving efficient functioning of markets (other than natural monopolies, perhaps) such as the credit card and debit card markets.

The trend toward direct regulatory intervention is thus questionable given the nascent stage of empirical work on estimates of benefits to merchants from debit and credit card networks, and the complex inter-relationships between network-level investments, card usage, and the delivery of such benefits. Indeed, much of the available literature and policy pronouncements define “benefits” to merchants too narrowly and thus tend to understate these by confining them to transactional gains, while omitting from the assessment the broader benefits provided by credit card and debit card networks.